Two Palestinians have been wounded in a gun battle in Bethlehem, as the stand-off with Israeli troops around the Church of the Nativity continues.

The exchange of fire took place after four other Palestinians - some of whom are thought to be policemen - had given themselves up.

There were protests in Ramallah over Arafat's confinement

An Israeli army spokesman said earlier on Friday that Israel would not rule out using a "military option" to end the siege, which has been going on since 2 April.

But this statement was later contradicted by another spokesman, Lieutenant Colonel Olivier Rafowicz, who said Israeli troops would not enter the compound by force.

Israel's goal, he said, was to resolve the standoff peacefully, to release the people inside and arrest those who are wanted without harming the church.

There has been no breakthrough in negotiations to end the siege which have been going on since Tuesday.

On Friday morning Israeli forces re-entered the town of Qalqilya despite a new plea from President George Bush to complete their military withdrawal.

But they left again in the evening and are now reported to have taken up position around the town.

Israeli Defence Minister Binyamin Ben-Eliezer was quoted as saying in a visit to the area that the incursion was "short term" and not a re-occupation of the town.

Militant killed

About 15 Israeli tanks and armoured personnel carriers went into Qalqilya and three nearby villages early on Friday, according to witnesses.

Troops conducted house-to-house searches after declaring a curfew and arrested 13 suspected Palestinian militants. It is the second such raid since Israeli forces began pulling out of the town on 9 April.

And the Israeli military said it had killed a local leader of the militant Popular Front for the Liberation of Palestine faction in the town, named as Raed Nazal.

The BBC's Jonny Dymond in Jerusalem says the latest incursion in Qalqilya follows a pattern the army has repeated across the West Bank - withdrawing from the centre of towns, encircling them and then going back in when it says it has information about "terrorist" suspects.

Israel has pulled back from most of the West Bank towns it reoccupied in the offensive launched on 29 March.

But Palestinian leader Yasser Arafat remains confined to his shell-blasted Ramallah headquarters, surrounded by Israeli troops who smashed their way in at the start of the offensive.

On Friday Israeli troops in Ramallah fired tear gas on hundreds of Palestinians, who had gathered to protest against Mr Arafat's confinement.

Siege

Four Palestinians, some said to be in police uniform, gave themselves up to Israeli troops in Bethlehem in the latest of a series of surrenders.

Arafat remains confined in Ramallah

Another two were shot and wounded immediately afterwards, then taken into custody.

Earlier, eight of nine Palestinian youths allowed to leave the church on Thursday were released.